Top 6 Steps in the Estate Planning Process
Estate planning involves designating someone to receive your assets in the event of your incapacitation or death. It’s mostly done with guidance from an attorney, experienced in estate planning in California or elsewhere. The primary objective is to ensure heirs and beneficiaries receive assets in a way to manage and reduces estate taxes, gift taxes, and other tax impacts.
In this article, we’ve identified the six steps to basic estate planning
1. Enlist Your Assets and Belongings
If you look around, you’ll feel surprised by all the tangible and intangible assets you own. The tangible assets in an estate may be real estate properties, vehicles, collectibles, and other personal possessions. The intangible assets in an estate may include bank accounts, investments, shares, stocks, bonds, life insurance policies, retirement plans like workplace 401(k) plans, individual retirement accounts, ownership in a business, etc.
2. Review your Beneficiaries
Your will and other documents should specify your wishes. They may not be all-inclusive. Check your retirement and insurance accounts. Usually, retirement plans and insurance policies have beneficiary designations that you must keep track of and update as needed.
Confirm that the most deserving people get your stuff. People often forget the beneficiaries they had nominated on policies or accounts created years back. If your ex-spouse is still a beneficiary on your life insurance policy, then it’ll be an injustice towards your current spouse. Don't leave any beneficiary sections blank. Nominate contingent beneficiaries.
3. Account for Your Family's Needs
Once you figure out what’s in your estate, consider ways to protect the assets and your family during your unavailability. Ensure you have enough life insurance. Document your wishes for the care of your children. Appoint a guardian for your children.
4. Establish Your Directives
Any comprehensive estate plan includes important legal directives, such as a trust that might be appropriate. A revocable living trust ensures that you can designate portions of your estate to go toward certain things even when you're alive.
A medical care directive or a living will specify your wishes for medical care if you can’t make those decisions yourself.
A durable financial power of attorney lets someone else manage your financial affairs if you can’t do so medically. As directed in the document, your designated agent can act on your behalf in legal and financial situations if you can't.
A limited power of attorney can be effective if the idea of turning over everything to someone else bothers you. Be cautious about whom you give power of attorney.
5. Follow Estate Tax Laws
Estate planning is a method to minimize estate and inheritance taxes. However, the maximum number of individuals won’t pay those taxes. Federally, only very large estates are subject to estate taxes. In 2022, up to $12.06 million is exempt. For 2021, up to $11.07 million of an estate is exempt from federal taxation. If you own a larger estate surpassing the federal tax exemption limits, then consider a grantor-retained annuity trust or GRAT. It’s a sort of irrevocable trust to lessen the amount of taxes your heirs pay.
6. Plan to Reassess
The way many things change in life so does your estate plan. Revisit your estate plan if there’s any change in your circumstances. Periodically revisit your estate plan even if your circumstances remain the same. It requires some effort to revise your plan. However, the need to revise means that you’ve already avoided the biggest mistake in estate planning, which is never drafting a plan at all.
Conclusion
You should always weigh the value of professional help. Hire the best lawyer in California either in the form of an attorney or an estate tax professional to help create your estate plan. Everything depends on your present situation.
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